LONG TERM CONSTRUCTION CONTRACTS (PRACTICAL ACCOUTING

2)
Problem A. Makati development company obtained a contract to construct a mid-rise building in
Tagaytay City starting Jan 1, 2010. It was estimated at the beginning of the contract that it would
cost MDC the amount of P3,600,000 for the 3-year construction. The agreed contract price was
P4,500,000. The following information describes the status of the construction at the close of
each year.
Actual Cost incurred
Estimated
cost
to
complete
Billings in the contract
Collection of the Billings
each year
I.

2010
2,025,000
675,000

2011
2,475,000
288,000

2012
270,000
0

1,980,000
1,800,000

2,160,000
2,160,000

360,000
540,000

Cost Recovery Method/ Zero Profit Method/ Hybrid Method:

1. How much is the Realized Gross Profit/(loss) to be recognized in 2010?
2. How much is the Realized Gross Profit/(loss) to be recognized in 2011?
3. How much is the Revenue to be recognized in 2010?
4. How much is the Revenue to be recognized in 2011?
5. How much is CIP as of 2010?
6. How much is CIP as of 2012?

Problem B. Makati development company obtained a contract to construct a mid-rise building in

Tagaytay City starting Jan 1, 2010. It was estimated at the beginning of the contract that it would
cost MDC the amount of P3,600,000 for the 3-year construction. The agreed contract price was
P4,500,000. The following information describes the status of the construction at the close of
each year.
Actual Cost incurred
Estimated
cost
to
complete
Billings in the contract
Collection of the Billings
each year
I.

2010
2,025,000
675,000

2011
2,475,000
288,000

2012
270,000
0

1,980,000
1,800,000

2,160,000
2,160,000

360,000
540,000

Using Percentage of Completion Method:

1. How much is the Realized Gross Profit/(loss) to be recognized in 2011?
2. How much is the Realized Gross Profit/(loss) to be recognized in 2012?
3. How much is the Revenue to be recognized in 2010?
4. How much is the Revenue to be recognized in 2011?
5. How much is CIP as of 2010?
6. How much is CIP as of 2012?

Problem C: In 2011, James Builder Co. was contracted to build a railroad. The project was
initially estimated to have a completion period of 4 years. If the project is completed within the
budgeted construction period, an incentive payment of P200,000 shall be provided to JBC.
Information on the project is shown below.
2011
Cost incurred to date 2,400,000
Estimated
cost
to 3,600,000
compete

2012
4,575,000
1,525,000

2013
6,125,000
125,000

As of December 31,2013, JBC assessed that project will be completed earlier tha expected and
thus, JBC will be entitled to the incentive payment. I it probable that JBC will realize the incentive
payment. All costs are ecpected to be recoverable.
REQUIREMENTS:

LONG TERM CONSTRUCTION CONTRACTS (PRACTICAL ACCOUTING

2)
1. What is the total estimated contract price in 2011, 2012, and 2013 if the Final Contract
Price will be billed at cost plus 20% (cost plus variable fee)
2. What is the total estimated contract price in 2011, 2012, and 2013 if the Final contract
price will be billed at cost plus fixed fee of P1.5 Million (cost plus fixed fee)